Home prices rose in October as lackluster housing supply continues to prop up the U.S. real estate market despite higher mortgage rates.
According to the Federal Housing Finance Agency (FHFA), the average prices of single-family homes with mortgages guaranteed by Fannie Mae and Freddie Mac climbed 0.3 percent in October. This was down from an upwardly revised 0.7 percent in September.
Compared to the same time a year ago, house prices increased by 6.3 percent.
Regionally, seasonally adjusted monthly price changes ranged from a 0.3 percent drop to a 1.1 percent gain.
“U.S. house price gains remained strong over the last 12 months,” said Nataliya Polkovnichenko, the Supervisory Economist in FHFA’s Division of Research and Statistics, in a statement.
“On a monthly basis, price appreciation moderated in October, with four divisions exhibiting slowdowns from the previous month.”
Likewise, the S&P CoreLogic Case-Shiller Home Price Index (HPI) advanced 4.8 percent year-over-year in October, representing the strongest annualized gain in 2023.
Both measurements witnessed increases amid a sharp rise in mortgage rates.
At the end of October, the average 30-year fixed-rate mortgage flirted with the 8 percent mark, according to the Freddie Mac Primary Mortgage Market Survey (PMMS). Mortgage News Daily reported in October that the 30-year FMR had crossed the 8 percent threshold.
Now that mortgage rates are easing and the Federal Reserve has signaled the loosening of monetary conditions in 2024, “homeowners may be poised to see more appreciation,” says Brian Luke, head of commodities, real & digital assets at S&P Dow Jones Indices.
“We are experiencing broad based home price appreciation across the country, with steady gains seen in nineteen of twenty cities,” Mr. Luke said in the report. “This month’s report reflects trendline growth compared to historical returns and little disparity among cities and regions.”
Since the U.S. central bank revealed that it was planning for three rate cuts in 2024, Treasury yields tanked, resulting in lower mortgage rates. For the week ending Dec. 21, the 30-year FRM stood at 6.67 percent, Freddie Mac data show.
Overall, the Department of Housing and Urban Development (HUD) statistics show that the median sales price of homes sold in the third quarter was $431,000, up 35 percent from the third quarter of 2019.
Affordability Still an Issue
Housing affordability continues to be a significant issue in the U.S. real estate market.
According to a recent analysis from real estate group Redfin, just 15.5 percent of homes for sale were identified as affordable for the average U.S. household. This was the lowest percentage since the organization started tracking this decade about a decade ago.
In 2023, there were more than 596,000 affordable listings, down from more than a million in the previous decade.
Researchers noted that affordability collapsed 40 percent from before the coronavirus pandemic and only 21 percent from a year ago.
“While the decline is partly due to a drop in listings in general—listings overall fell 21.2% year over year—it’s also due to the fact that elevated mortgage rates and stubbornly high prices made the listings hitting the market more expensive,” the report stated.
However, housing affordability is improving as mortgage rates ease and home price growth slows, says Redfin Senior Economist Elijah de la Campa.
“Many of the factors that made 2023 the least affordable year for homebuying on record are easing,” he said. “Mortgage rates are under 7% for the first time in months, home price growth is slowing as lower rates prompt more people to list their homes, and overall inflation continues to cool. We’ll likely see a jump in home purchases in the new year as buyers take advantage of lower mortgage rates and more listings after the holidays.”
Realtor.com also expects some relief for prospective homebuyers as prices could dip close to 2 percent in 2024.
But home prices could regain momentum should the Fed follow through on its rate cuts in 2024, according to Fitch Ratings.
The ratings agency anticipates residential property valuations could surge as much as 3 percent in 2024 and 4 percent in 2025. This would exacerbate affordability challenges, impacting entry-level and first-time homebuyers since 88 percent of metro areas were already labeled as overvalued in the second quarter.
The futures market is penciling in a quarter-point rate cut as early as the March Federal Open Market Committee (FOMC) policy meeting. Economists have diverged from investors, noting that it is more likely that Fed officials would pull the trigger on the first rate cut since the early days of the pandemic next summer.
Supply Remains Tight
In addition to mortgage rates, a lack of supply has been a substantial contributor to higher prices in the housing market.
The number of active residential listings was tepid compared to a year ago, rising just 0.7 percent year-over-year in November, according to Realtor.com’s Monthly Housing Market Trends Report.
While housing inventories in November jumped 2.4 percent month-over-month, active residential listings are still down 38 percent below the typical 2017 to 2019 levels.
The lack of inventory was most pronounced in the country’s largest areas, notes Danielle Hale, the chief economist at Realtor.com.
“The number of homes for sale in the 50 largest metro areas in the U.S. decreased by 4.3% compared to last year, and inventory in this group of metro areas as a whole is 34.4% below pre-pandemic levels,” Ms. Hale stated.
With an immense share of current homeowners who acquired their houses, townhomes, and condominiums at rock-bottom pandemic-era interest rates and lower prices, many of them have been unwilling to erect for-sale signs on their front lawns.
Existing home sales have tumbled this year in eight of the 11 months. Although new home sales have been mostly healthy in 2023, they plummeted 12.2 percent last month.
From The Epoch Times
